Ex-Banker Leading Adnoc’s M&A Push Says Deal Spree Will Continue

(Bloomberg) -- Abu Dhabi National Oil Co., the state oil giant that underpins the United Arab Emirates’s booming economy, has become one of the energy industry’s busiest dealmakers as it looks to go global.

But in recent months stalled deals prompted speculation that Adnoc had lost momentum. Not so, says Klaus Froehlich, the former Morgan Stanley banker spearheading most of Adnoc’s international expansion plans.

While the company will always be disciplined, it’s “full throttle ahead” with its expansion and is pursuing a “healthy deal pipeline,” Froehlich, Adnoc’s chief investment officer, said in a rare interview earlier this month.

“Adnoc is executing on its plan and creating a portfolio of businesses across key verticals in gas, LNG, chemicals as well as renewables and little by little, the puzzle is now coming together,” he said.

Adnoc Chief Executive Officer Sultan Al Jaber has transformed the country’s top oil producer in the last few years. He has brought billions of dollars into the firm by selling shares in some of its key units and got international investors such as Brookfield Asset Management and KKR & Co to put money in the company’s infrastructure. Al Jaber is also the main architect behind Adnoc’s international expansion plan.

The energy giant has announced a series of acquisitions as part of a plan to invest $150 billion by 2027 to expand its footprint at home and spread its international reach.

This month has seen a flurry of activity. Adnoc purchased a stake in NextDecade Corp.’s LNG export project in Texas, its first US acquisition that also gives it a 20-year supply deal. The company also agreed to buy a 10% stake in a natural gas project in Mozambique. Separately, Adnoc sold $935 million worth of shares in a secondary offering of its drilling unit, increasing the company’s free float to more than 16%.

“We are a big believer in gas and its future as a transition fuel. In order to optimize our LNG business today and to be a reliable supplier to our customers, we need to have positions globally,” Froehlich said.

But in recent months Adnoc walked away from a potential acquisition in Brazil and suspended a deal in Israel. Talks over transactions with Germany’s Covestro AG or Austria’s OMV AG appear to have stalled.

“We go into every deal hoping that we can get it done but it won’t be by compromising our standards on value and discipline,” Froehlich said.

READ: BP and UAE’s $2 Billion Israel Gas Deal Suspended as War Rages

Adnoc’s international ambitions are closely aligned with its domestic expansion strategy, where it’s boosting LNG capacity in the Ruwais project, according to Froehlich.

Chemical Deals

In the chemicals sector, Adnoc is currently in talks to buy Germany’s Covestro and — in a separate transaction — merge its domestic petrochemical firm Borouge with rival Borealis, which is controlled by Austrian oil and gas firm OMV. Froehlich declined to comment on the current status of talks with Covestro, but said the company was “a great platform with a fantastic management team.”

Adnoc is a “firm believer in the future of the chemicals industry — either derived from hydrocarbons but then also increasingly from circular feedstocks and biomass,” he said. Based in Leverkusen, western German, Covestro is working on sustainable forms of materials and uses recycled raw materials and renewable energy in its production.

Speaking about OMV, in which Adnoc acquired a 25% stake from fellow Abu Dhabi investor Mubadala, Froehlich said the Austrian oil and gas champion is a “great investment into an under-appreciated company.” Adnoc sees long-term value in the partnership that Froehlich said is “very crucial to us.”

Asked about a merger between Adnoc’s petrochemical firm Borouge with OMV’s polyolefin unit Borealis, Froehlich stressed both parties need to be aligned and find it beneficial. “OMV and Adnoc can do a lot of things together,” he said.

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